Report regarding investigation directed to be made by the President in his Executive Order of November 27, 1933, approving the Code of Fair Competition for the motion picture industry (July 1934)

the producers are turned against them by the necessity for paying excessive salaries; and (2) unfair competitive bidding for talent. The Star System (not confined to actors alone but embracing all employed in artistic, creative, directorial, specialized, technical, and supervisory capacities) This system of selecting artists in the motion picture industry tends to create an artificial scarcity of talent. Its operation tends to force the supposed values of artists to fantastic figures by withholding from the market the potentially available services of executive ability and artistic talent of equal ability. So in 1932 published statements of salaries paid or allegedly paid in the motion picture industry presumed to show a total of more than $16,000,000 paid annually to less than 230 employees in the eight major producing companies. Such statements do not include the salaries, payments, or bonuses received by approximately 500 officials, executives, directors, and others. The inflated values which producers have placed upon a limited number of executives and artists, have created a vicious circle of bidding for their services. The creatures of the system have turned to plague their masters. The position of the star has assumed such importance in the motion picture industry that producers have been induced to use every means at their disposal to entice away from other producers those individuals of proved box-office value who are performing under contract with another producer. Quite naturally, every producer has exerted similar ingenuity to retain the services of exceptional talent which he currently has under contract. Another result of the system has been in some cases to "freeze" talent to the extent that valuable employees under contract to one company are permitted to remain idle for extended periods of time so that a rival company could not enjoy their services while they are not actually working under the then employer, and with the further result that their value to the industry generally, due to their inactivity, becomes greatly impaired. On the other hand, and the converse of that situation whereby talent is "frozen", is the loaning by employers of stars under contracts to competing producers at extremely high prices to the competing producer, such prices being any number of times the regular salary which the star is entitled to receive from the then employing producer. Such loaning arrangement, as distinguished from loaning at a nominal amount above the star's salary for the period of the loan, in itself causes increased production costs: an increased production cost to the competing producer who borrows the talent; the engendering of a feeling in the mind of the star that he must thereafter necessarily be worth to his then employing producer the exorbitantly higher amount which his then employer has charged the competing producer; and as a result of such feeling in the mind of the star the then employing producer is met at once with demands for increased compensation which must either be yielded to or refused with concomitant dissatisfaction and disharmony between the then employing producer and such employee. Offers to Stars Under Contract The law of contracts, of course, furnishes protection to a producer against the offers which another producer might make to induce an employee to breach his contract. Thus, if a competing producer offers a larger salary to a star in order to induce him to break his existing contract, the former producer has legal recourse. However, if the offer to a star currently under contract is one which promises a larger salary at the expiration of the existing contract, the law of contracts offers no recourse to the injured producer for any injury which he may sustain. The practice of competitive bidding for stars, which has led to a great deal of the mischief in the production division of the industr}^ is based upon the stuff of which stars are made. It appears that the services performed by stars and directors are of such character, and moreover, their temperament is of such character, that complete contentment is necessary to the proper performance of their work. Their value is apparently nil when they are "unhappy." It is a common experience of producers that where offers of increased compensation are made to stars during their present employment, their services become practically worthless to their employers unless their salaries are increased to accord with the competing offer. The mere offer to a star of substantially increased compensation upon termination of his existing contract apparently produces a psychological effect in his work which tends to decrease or to actually destroy the value of his services to his present employer. Thus, in actual operation, a producer can by a mere offer compel his competitor to increase the compensation of the star beyond the value which the business judgment of that producer has placed upon the services of this employee. As already pointed out, the natural scarcity of talent in any field of artistic endeavor imposes certain restrictions upon the freedom which producers or managers can exercise in the selection of talent. When this natural scarcity is further aggravated by the artificial scarcity of talent which has been created by the star system, the producer has very little protection against a star who refuses to perform adequately under his contract. As a result, the competition of one producer against another for services of stars through the medium of offering increased compensation upon the termination of existing contracts, when such offer is made prior to the expiration date of contract, tends not only to force salary scales to excessive heights, but tends as well to depress the quality of film entertainment offered to the public.